Friday, October 24, 2008

Below is the complete text of the lecture I presented at The Conversation in Berkeley on October 18th.

Redefining Digital Content Distribution, orWhy Apple is About To Get Its Ass Kickedby Ross L. Pruden

I’m a filmmaker myself, and I’ve spent a long time studying movie distribution so I’m excited to share my predictions here at The Conversation. By the way, I should add that I’m a two decade Mac user so I share no joy at the prospect of Apple’s possible demise.

HOW WILL IT END?I’m currently writing a business plan for my own film company, yet when I get to the Marketing & Sales section for my plan, all I see is a US-Letter Sized question mark. Movie piracy is more pervasive than ever before—not necessarily a bad thing—and newer distribution models are still competing for dominance. How is this all going to end?

On my blog, I discuss how digital content is being distributed, and a recent post called iTunes’ Death Knell describes how iTunes in its current incarnation faces some potentially fatal challenges from its competitors.

THE OLD MODELOur dominant model for digital content distribution of music, movies, and software has been historically rooted in physical ownership, i.e., movies are sold on DVDs, games come on CDs, and music comes on a CD or on MP3s. As broadband becomes more pervasive, we see that dominant model shift from a physical product-based ownership to a virtual license-based ownership.

Let’s say I buy a new movie at a store for $25. I buy it on DVD, take it home, and get ready to play it. Then my precocious daughter smears her cheese snack all over my new DVD. I’m out $25. Or maybe I buy a CD for $15. Or a new PC game or application for $50-$300. And then my house burns down. Once the physical product is destroyed, you have to repurchase it. In a digital age, where copies can be made instantly and without degradation, this is unacceptable.

THE NEW MODELAnd we already see a slow exodus to the online world. More people are using online applications like Google's Docs & Spreadsheets instead of Microsoft's Word & Excel. Netflix offers an online movie service called Watch Instantly. Users even create their own radio stations on Last.fm, Pandora. The trend is slowly moving towards constantly accessible streamed content.

Right now, iTunes lets me buy a complete season of 24, but at half a gigabyte per episode, I need 12 gigabytes to store an entire season. Storing three seasons on my laptop starts to become unmanageable. Or maybe I have my entire music library on my desktop, but my laptop only carries a fraction of that. As a user, I want to have access, anywhere, to all the content I’ve ever purchased—forever. The only way to accomplish that is to sell content licenses to stream content whenever users want it.

STEAMThe Valve Corporation, responsible for the famous Half Life games on PC, maintains a gaming network called Steam. Steam is a license-based platform offering over 250 games and boasting 15 million users. If you visit someone’s house, all you have to do is log into your Steam account and you can download and play any game you own that you’ve purchased through Steam. If you need hard drive space, you can delete games from your hard drive and download them again later. If your house burns down, there's no scrambling with customer service to prove you bought your content—you only your Steam account username and password to have access to any of your games.

For the consumer, license-based distribution also makes upgrading very attractive: for example, if I bought a $20 DVD and later on I want to buy a $35 Blu-Ray DVD, I can “upgrade” my DVD license with that $15 difference and then download the newer hi-def version. Customers would never need to worry about being gouged for purchasing a newer version reissued every few years.

ITUNES, MEET DECEAlthough iTunes is popular now, it only sells product, not product licenses. You buy MP3s and if your hard drive crashes, those MP3s are gone. Worse, each company's proprietary DRM means MP3s purchased on other platforms like Zune cannot be played on your iPod.

a TV episode to be just as easily accessed on Microsoft's Zune as it would a Philips broadband-enabled TV set;

an unlimited number of copies of a video to be created or burned onto a disc;

the consumer does not even need to store a copy at all, but stream it from a server-based "rights locker" that can be tapped from any location.

HOW IT WILL ENDOkay, so how will it end? What might license-based distribution actually look like in the real world? It would probably interact seamlessly with the internet and use corporate sponsorship for those unwilling to pay a monthly subscription. One such scenario could go like this:

You're over at a friend's house and you're talking about a movie you just rented online through a web site. You want your friend to watch it, too, so you sign on to that web site and the film starts to download immediately.

While you're online, another friend—in a different location—sees you're about to watch a movie and sends you a text or video message, via the web site: do you want to all watch it at the same time? You send him a virtual invite or "guest pass"—which would be limited to only 5 or 6 per movie—and now your remote friend has joined your virtual “audience”.

After the film is over, one of your friends is so impressed with the film (which he’s essentially seen for free) that he decides to buy it himself. Another of your friends recommends the movie to his friends. The remote friend might be by himself and perhaps he likes to surf the web while watching films, and so he clicks on some of the sponsored links related to the film's topic matter, e.g., clothing choices, charities the movie's actors have started, other movies the director or producers have made, other movies you're recently watched and rated, etc. Or, if the remote friend is watching your rented movie, he could pay—at any time—to watch the rental himself so as to remove all the embedded advertising links and overlays.

We’ve only spoken about music, movies, and software, but how about books? Wouldn’t it useful to remotely access the contents of any book you've ever bought? No reason why children need to lug around heavy book bags if they can instantly view or print any chapter they want to read.

TWO THINGSTwo things are clear about the current state of digital content distribution for movies:

iTunes has the dominant model for physical product-based distribution—you buy a movie or TV show through iTunes and you can be watching it within minutes.

iTunes no longer has the competitive edge on providing the distribution model consumers will ulimately want and if iTunes doesn’t work out an arrangement soon with the founders of DECE to sell movies through iTunes with DECE’s “rights locker” features... well, Apple is about to get their ass kicked.

UPDATE: Since the writing of this lecture, news has been reported of a new music streaming web site Lala.com. Lala.com lets users listen to any song without limitation, for free, in the hope that some users decide to buy the songs. Much like Steam has done for games, Lala.com allows iTunes users to upload their library and listen to their music from any location.

4 comments:

I agree that we ought to be able to purchase a license to view content and be free to watch it anyway we want - as a stream, as a download, as a DVD. The problem I have with a centralized streaming model is that it tends not to offer the most efficient use of resources. For example the pipe through which the content flows must be big enough to handle peak simultaneous demand. I know that managed network technology offers the chance to change the bandwidth and network policies on the fly to cope with peaks but even so, bandwidth can be used more economically if content is downloaded first and watched later or even just buffered first rather than played "live". In practice of course the streaming model relies on a network of content caches distributed around the cloud – this storage and network bandwidth is more costly than a peer-to-peer model where each of us may hold the content and offer a piece to those downloading it.

The other snag with streaming is that I have to be online to watch/listen to the content. Given the patchy mobile network coverage and occasional Internet failure, I like the reassurance of a stored copy in my possession so that I'm not beholden to network availability. It's not the physical ownership as such, more the insurance. I agree that if I lose the the content I've been holding, I ought to be able to download a fresh copy – providing of course that it's still available.The best delivery model would allow content to be viewed in any way the paying audience member wishes to view it (streaming, download to DVD, download to portable device) - polling a DRM server somewhere to check that the member had permission.Unfortunately the industry (by which I mean the major players with the money and influence) have failed to collaborate effectively on a good shared DRM model or convenient download models (iTunes and Vuze being the exceptions) and hence we now live in a world where DRM is universally loathed by the public (or at least those aware that such a thing exists) and a world in which the Internet sets the expectation that everything ought to be free. This has resulted in unbridled and relentless piracy.

I fear that this DECE initiative is too little too late and seems a reaction to the fact that pirates have already stolen the technical initiative and the public imagination (by which I mean those growing members of the public that are tech savvy enough to be downloading ;))

Yes, I think you've hit it spot on: I failed to clarify that streaming content as the sole method is not good enough in itself. A more likely method is downloading content to one's hard drive (like a Netflix Queue) and deleting it anytime after you watch or listen or play... with the option to re-download at any point in the future. I could see that model flourishing.

I also think that DECE will thrive. Most users want an easy and legal way to buy content, but don't want to be gouged for it, either. When producers charge $35 for a DVD or $20 for a complete music album, of course there's going to be piracy. Users get to test drive a car before they buy it, why can't we let them do the same for digital content?

The beauty of a digital world, unlike the real world, is that resources are not depleted during the theft: a "stolen" viewing is not the same as a stolen apple. All that you can really say for sure is that a pirate has watched your film... and if you've made a great film, that may end up helping you in generating buzz.

Thus, those who pirate content do not necessarily equate to lost sales because they may not have bought the content to begin with. The trick is how we separate out those who will buy the content!

Great post. One of the things we did with RebFest was based on the idea that if you go to a book store you can browse a book and see if it's worth buying, but you can't do the same with a DVD. But what if you could watch the first 5-15 minutes of a movie for free and then based on what you saw you have a clearer idea if it's something worth paying for. We have this now on Tier II of http://www.rebfest.com We still in beta on this and are on the fundraising end, but I believe the concept of the site is sound and was based on reactions people had to what they wanted in a film/entertainment experience online.